New Business Models in the Music Industry
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New Business Models in the Music Industry
Authored by the Global Entertainment and Music Business program
Berklee College of Music – Valencia campus
A framing paper for the Rethink Music Business Models Workshop
April 26, 2013
Berklee Valencia
Palau de les Arts
Valencia, Spain
Workshop presented by:
1Table of Contents
1. Background on Rethink Music 3
2. General Industry Overview 3
Recording Industry 4
Publishing Industry 6
Live Industry 7
Case Study: The EDM Movement 10
3. Current Issues 12
The Value of Music 12
Balance Between Majors / Independents 14
Copyright Law / Licensing 16
Music and Brands 20
Monetization 21
Direct to Fan 23
4. The Business Model Approach 25
Concept 25
Application to Specific Examples 26
5. Research 28
Purpose of Research 28
Methodology 28
Results 29
Discussion 36
Conclusion 40
21. Background on Rethink Music
Berklee College of Music is pleased to present this paper which provides an overview of the
music industry in 2013, examines key current issues, and discusses the consumer’s point of
view about the consumption of music. The paper has been developed by the graduate
music business program at Berklee’s Valencia, Spain campus for release at the Rethink
Music new business models workshop in April of 2013.
Rethink Music began in 2010 as the result of collaboration between Berklee, Midem, the
Berkman Center for Internet and Society at Harvard University, and Harvard Business
School. We hosted major conferences in Boston in the spring of 2011 and 2012, drawing
over 600 people each year and attracting speakers ranging from the President of the RIAA
to the founder of the Creative Commons movement. Separately, we hosted private working
group meetings with Berkman in the fall of 2010, 2011, and 2012, which focused on policy
issues such as the Global Repertoire Database and easing the licensing process.
This year, Rethink Music will travel globally and will host a number of events around the
world. In January of 2013, we hosted the Rethink Music Innovation Summit, a private
business models workshop at Midem in Cannes. We are following this event with a public
version hosted at Berklee’s Valencia campus and another private workshop at SONAR in
Barcelona in June of 2013. In the fall of 2013, in conjunction with Instituto Empresa (IE
Business School) in Madrid, we will host our first ever Music Venture Day in Berlin.
Our goal has always been to foster real discussion and innovative solutions for the music
industry that will benefit all stakeholders, from creators to rights owners to distributors to
consumers. We are hopeful that this paper will help frame the issues and provoke
discussion during the Rethink Music Valencia workshop and beyond.
2. General Industry Overview
The music industry in 2013 continues to adapt to the seemingly endless digital landscape
and consumer consumption patterns. Innovation has widened the horizon of new
opportunities for music creators and consumers alike, yet piracy’s impact remains deeply felt
across the industry. A great deal of consolidation has occurred across all sectors of the
business in recent years, but newcomers continue to emerge with attractive value
propositions, effectively contributing to the changing methods in which music is produced
and consumed. To present a general overview of the current state of the music business,
the industry will be discussed in its three major divisions: recording, publishing and live
music.
Recorded Music
After over a decade of decline, the recorded music industry is making strides towards
recovery and revitalization. For the first time in thirteen years, the International Federation of
the Phonographic Industry (IFPI) reported that trade revenue generated from global
3recorded music industry experienced a positive annual increase by an estimated 0.3%,
reaching $16.5 billion1 in 2012, thanks to the impressive recent growth of digital music sector.
While this figure is far from the industry’s peak annual revenues of $36.9 billion in 2000,2
innovation in the music marketplace has spurred a new segment of growth. At least eight of
the top twenty markets are expected to see growth in the trade value of recorded music in
the next year, including Australia, Brazil, Canada, India, Japan, Mexico, Norway and
Sweden. 3 Frances Moore, chief executive of IFPI, expressed this year: “It is hard to
remember a year for the recording industry that has begun with such a palpable buzz in the
air. These are hard-won successes for an industry that has innovated, battled and
transformed itself over a decade.”
While global recorded music revenues have far to go in terms of reaching levels last seen in
the early 2000’s, the digital music sector has witnessed promising and growth in recent
years. In 2012, digital music revenues increased 9% to an estimated $5.6 billion, now
accounting for a third of global music industry revenues.4 Digital channels are increasingly
becoming a major source of income for record labels and publishers in a number of markets
such as Norway, Sweden, India and the US.5 In the United Kingdom, digital revenues
surpassed physical revenues for the first time in 2012, joining the United States, where
50.3% of total music sales were digital in 2011.6 This impressive growth can be attributed to
continued business model innovation in the music marketplace and the expansion of digital
services on a global level. The leading licensed digital music platforms, including iTunes,
Spotify, and Deezer, currently offer their services in over 185 countries combined, compared
to just twenty countries two years ago.7 Territories that previously lacked physical retailing
infrastructures are now within reach of record labels thanks to the growth of digital music
service offerings. Today, there are more than 500 licensed digital music services operating
globally, offering over 30 million tracks to consumers. 8 Stu Bergen, Executive Vice
President, International Head of Global Marketing of Warner Music Group expressed
optimism brought forth by the global reach of digital services: “We have plenty to do and
some amazing opportunities ahead of us. Until recently, the vast majority of our revenues
came from a handful of countries. Today, digital channels mean we can monetise markets
worldwide much more effectively.”9
Download stores continue to account for the majority of sales in global digital revenues with
roughly 70% of total revenues, 10 however the 40% revenue growth rate of streaming
services makes streaming the fastest growing sector in the industry11 and an important
source of digital revenues. Subscription rates to digital music streaming services were
1
International Federation of Phonograph Industry, Digital Music Report 2013
2
International Federation of Phonograph Industry, Recording Industry World Sales 2000
3
International Federation of Phonograph Industry, Digital Music Report 2013
4
Ibid.
5
Ibid.
6
Brian, Matt. “UK digital music downloads and streaming revenues overtake physical formats for the first time,”
The Next Web, 2012, http://thenextweb.com/uk/2012/05/31/uk-digital-music-downloads-and-streaming-
revenues-overtake-physical-formats-for-the-first-time/ (3 March 2013).
7
Resnikoff, Paul. “Spotify Is In 20 Countries. Deezer is in 182,” Digital Music News, 2013
http://www.digitalmusicnews.com/permalink/2013/20130128countries (3 March 2013).
8
International Federation of Phonograph Industry, Digital Music Report 2013
9
Ibid.
10
Ibid.
11
“Streaming music revenues up 40% globally in 2012,” BBC News, 2012,
http://www.bbc.co.uk/news/entertainment-arts-19270362 (3 March 2013).
4initially slow to take off, however the number of paying subscribers in 2012 grew to over 20
million globally, a 44% increase compared to 2011.12 For the first time, overall revenues
from subscription music services are believed to account for over 10% of digital revenues.13
In Scandinavian countries, streaming services account for a bulk of digital revenues. “We do
see a similar trend [for sales] across the Nordics, but primarily for Sweden and Norway,
where the penetration for streaming services is very high,” Spotify spokeswoman Marine
Elgrichi said.14 Sweden, the birthplace of Pirate Bay and later streaming giant Spotify, has
witnessed a positive impact on overall music sales15 and a drastic decrease in piracy,16
where legal streaming solutions are most prevalent. This confirms the widely held belief that
the recorded music industry needs to create business models that resonate with consumers
in addition to focusing on enforcement of copyright law.
While the increase in recent subscription rates are encouraging, they have yet to enable
most music streaming platforms to operate as profitable businesses. The challenge of the
“freemium” business model employed by leading streaming services is that paying rights
holders when their content is streamed can be a burdensome task, particularly when free
users greatly outnumber paying subscribers as they currently do. Pandora pays an
estimated 50-60% of revenues for content acquisition,17 while Spotify reportedly pays 70%
for content acquisition alone,18 leaving little room for taking care of other costs, and certainly
not a profit. Even with revenues continuously increasing since 2010, Pandora and Spotify
have experienced net losses19 due to these costly operating expenses.
The major challenge subscription music services face today is the difficulty of attracting
more paying subscribers to their platforms (Spotify reportedly converts 20% of its free users
in to paid users). 20 If these digital music services are able to achieve substantive
conversions, streaming could inevitably become a sustainable business model, breathing life
back into the recorded music industry. Some services are embracing creative campaigns to
help. In late 2012, streaming platform Rdio launched its Artists Program in an effort to
reward artists directly $10 for each new paying subscriber they refer to the service,21 but the
effectiveness of this concept is unclear and currently unique to Rdio. In a world where music
services must compete with free, it is evident that streaming platforms must create added
value for consumers in their paid offerings if they wish to increase subscription rates. The
research presented at the end of this paper aims to evaluate current entertainment
12
International Federation of Phonograph Industry, Digital Music Report 2013
13
Ibid.
14
Billing, Sören. “Swedes prefer streaming to downloading,” The Local, 2013,
http://www.thelocal.se/46646/20130310/#.UXFME79kVFQ (11 March 2013).
15
Resnikoff, Paul. “Swedish Music Sales, 2012-2012…” Digital Music News, 2013
http://www.digitalmusicnews.com/permalink/2013/20130204sweden (11 March 2013).
16
Clayton, Nick. “Piracy Falls, But Not All Musicians Are Happy,” Tech Europe - The Wall Street Journal, 2011,
http://blogs.wsj.com/tech-europe/2011/09/30/piracy-falls-but-not-all-musicians-are-
happy/?mod=google_news_blog (11 March 2013).
17
Sisario, Ben. “After a Quarterly Gain, Pandora Warns of a Loss to Come,” The New York Times, December
5,2012.
18
Houghton, Bruce. “Spotify Asks Labels To Pay Less, Expand Free Mobile,” hypebot, 2013,
http://www.hypebot.com/hypebot/2013/02/spotify-asks-labels-to-pay-less-expand-free-mobile-report-
.html (12 March 2013).
19
Pierre, Carl. “Will Music Streaming Ever be a Sustainable Business Model?,” InTheCapital, 2012,
http://inthecapital.com/2012/09/09/will-music-streaming-ever-be-a-sustainable-business-model/ (12
March 2013).
20
“Music Sales Up for First Time Since 1999, Piracy Down,” TIME, February 28, 2013.
21
“The Rdio Artist Program,” Rdio, 2013, http://www.rdio.com/artistprogram/ (12 March 2013).
5consumption trends and consumer attitudes specifically towards digital music service
offerings, in an effort to provide insight as to how the industry may provide more compelling
music solutions to consumers.
Publishing
The music publishing sector was also hit by the downturn in recorded music sales, but after
the initial decline, publishers began diversifying revenue channels to encompass deals with
mobile partners, app developers, streaming services, greeting cards, film, and other sources
outside the traditional model.
As a result, compared to the recorded music sector, music publishers have fared better
since piracy began to impact the industry over a decade ago. The major music companies
(Universal, Sony, etc.) have publishing divisions accounting for roughly one third of total
revenues, typically with much higher profit margins compared to the companies’ overall
business.22 By nature of their business, publishers are inherently positioned to generate
higher returns on their investments than a record label - they do not have to recoup large
costs spent on developing, producing, marketing and distributing an artist’s music, and their
efforts are typically confined to marketing music in their catalogues to advertisers and
broadcasters. Furthermore, while publishers experienced considerable losses in mechanical
royalties from physical formats, U.S. publishers have witnessed growing revenues from
statutory mechanicals from digital downloads. Even when iTunes, the industry’s current
largest online revenue source, moved to a variable pricing structure in 2009, publishers
maintained relative stability thanks to fixed rates set by the Copyright Royalty Board. The
same is mostly true across Europe, even with variable percentage rates for mechanicals.
As consumers drift farther away from physical formats, profits resulting from music
publishing for a variety of uses in advertising and entertainment outside traditional deals are
making the publishing sector of the larger industry more important than ever, especially
within the new media realm. Universal Music Publishing recently inked an innovative deal
with Full Screen and Maker Studios, two top YouTube Partner Channels accounting for over
4 billion views a month. The ground-breaking agreement enables video creators working
with Full Screen and Maker Studios to legally use songs from the Universal Music Publishing
catalogue as samples, soundtracks and covers, and even allows video creators to take part
in advertising revenues as a result of those videos.23 Universal Music Publishing in turn
receives the benefit of a higher cost per impression rate from advertising revenues from their
music circulating in videos from the two networks, as advertisers often pay a premium to
place their content in videos distributed by Full Screen and Maker Studios, whose engaging
videos reach valuable demographics.24 The other two majors have yet to strike similar deals
with video distribution networks, however it is likely they will consider doing so in the future
as potential revenues are estimated to scale greatly with time.25 The deal demonstrates the
22
Randall, David. “The One Bright Spot In The Music Business,” Forbes, January 9, 2009,
23
Van, Alan. “Universal Music Publishing Group Announces Partnership with Fullscreen And Maker Studios,”
Maker Studios, 2013, http://www.makerstudios.com/company/news/universal-music-publishing-group-
announces-partnership-with-fullscreen-and-maker-studios/ (14 March 2013).
24
Christman, Ed and Pham, Alex. “Universal Music Publishing Inks Deals with Fullscreen, Maker Studios,”
Billboard, 2013, http://www.billboard.com/biz/articles/news/1538590/universal-music-publishing-inks-
deals-with-fullscreen-maker-studios (14 March 2013).
25
Ibid.
6collaborative benefits that can be reached by tapping into popular multi-channel networks on
an increasingly prominent medium in entertainment consumption.
Live
Like the recorded music sector, wide scale consolidation has occurred in live music over the
past few decades, leaving a few large players, most notably global leader Live Nation
Entertainment. In recent years, Live Nation strengthened its position as the dominant force
in the live business by pursuing a vertical integration strategy, acquiring leading ticketing
company Ticketmaster and a number of smaller promotion companies, as well as operating
roughly 100 notable live music venues around the world.
When the overall music industry’s health began to suffer as result of piracy, the growth of the
live music sector offset the damage to recorded music revenues. Live concert ticket sales
tripled in value in the United States between 1999 and 2009, from $1.5 billion to $4.6
billion.26 In addition to escalating costs resulting from increasingly elaborate live productions,
music industry players have become more reliant on live revenues, causing concert ticket
prices to significantly rise. In 2008, concert tickets reached peak prices at an average of $67
in North America, compared to $26 in 1996, translating to an increase four times greater
than inflation.27 Following the global economic decline in 2008 and lackluster concert sales,
promoters lowered ticket prices for the next two years to adapt to changing consumer
entertainment patterns. As a result, the live industry benefited from positive regrowth in
ticket sales revenues as well as the volume of tickets sold, and promoters began pushing
ticket prices up once again to an average of $68.76 in 2012.28 Concert industry trade
publication Pollstar reported that in 2012 box office revenues for North America concerts
totaled more than $4.3 billion, with a 5% rise in ticket sales totaling 36.7 million sold,
compared to 34.74 million sold in the previous year.
It is worth noting that the majority of North America’s top 100 grossing tours in the last
decade came from relatively older, established acts with a few decades of experience under
their belt. Professional services consulting firm Deloitte looked at the highest grossing
performing acts in the United States from 2000-2009 and found that 40% of the top twenty
lead singers were 60 years old or older, 19% were in their 50’s, 35% were in their 40s, and
just 6% were in their 30s, while none of the lead singers were under 30 years old.29 With the
live business reliant on just a handful of aging touring acts capable of selling out large
concert venues with ticket prices in the triple digits, it may be of some concern to the music
industry that in future years newer acts will face the challenge of producing revenues to the
same extent of exiting superstars and legacy artists. This is not to say newer acts are not
capable of selling out large concerts and touring the globe (looking at you, Justin Bieber),
but it is likely their active time in the spotlight will be less than artists have enjoyed in the
26
“What’s working in music: Having a ball,” The Economist, 2010, http://www.economist.com/node/17199460 (13
March 2013).
27
“Concert Ticket Prices Expected To Drop in 2011 After Sluggish 2010”, Billboard, 2010,
http://www.billboard.com/biz/articles/news/touring/1196169/concert-ticket-prices-expected-to-drop-in-
2011-after-sluggish-2010 (13 March 2013).
28
“Pollstar’s Top 200 North American Tours,” Pollstar, January 7, 2013.
29
“Keeping the life in live: A&R diversifies,” Deloitte, 2011,
http://www.deloitte.com/view/en_GX/global/industries/technology-media-telecommunications/tmt-
predictions-2011/media-2011/d97f8f036907d210VgnVCM2000001b56f00aRCRD.htm (14 March 2013).
7past, as the choices consumers have when it comes to music and entertainment in general
continue to exponentially grow and attention spans shrink.
While the concept itself is not new, music festivals have exploded in popularity on a global
scale in recent years. As ticket prices for solo concerts continue to escalate, many
consumers are willing to spend more in order to have access to a large roster of acts spread
over a few days and to immerse themselves in the “festival experience”. Burning Man and
Coachella (USA), Big Day Out (Sydney and Melbourne, Australia), Leeds Festival (England),
T in the Park (Scotland) and Rock Werchter (Belgium), are speculated to attract between
50,000 and 100,000 music fans each day of operation, while Roskilde (Denmark) and
Glastonbury (England) are often estimated to attract between 100,000 and 140,000
attendees daily. Many festivals have expanded outside of their home region, such as
Lollapalooza and Sónar (Spain). A slim version of Lollapalooza debuted in Santiago, Chile
in 2011 and in São Paolo, Brazil the following year. Already acclaimed as a magnet for the
world’s forward thinking electronic and experimental talent in its hometown of Barcelona,
Sónar has been focused on international expansion in recent years, hosting frequent events
around the world. The festival made its Canadian and American debut tour during last fall’s
Sónar On Tour, and will be celebrating its 20th year anniversary with an international run
through Reykjavik, Tokyo, São Paulo, Cape Town and culminating in Barcelona. Festivals
have become a cultural staple of not only summer but year round entertainment worldwide.
In the United States, major festivals like Coachella, Sasquatch, Bonnaroo and Lollapalooza
are witnessing record attendance numbers, often selling out tickets before lineups are
announced. Last year, Coachella added a second weekend to its lineup, pulling in a record
breaking $47 million gross. Concurrently with the rise in popularity of music festivals, the
number of new festivals debuting every year in the United States is raising concerns about
market oversaturation as has occurred over the past few years in the United Kingdom.
There, festival-goers had too many choices to choose from with similar lineups and “so-so”
appeal, as promoters became occupied with remaining profitable and failed to meet
consumers’ expectations. Amidst a shaky economic climate, the UK festival market suffered
drastic consequences last year with low attendance numbers and many festivals even
closing their doors. (At least a dozen festivals in the UK either went out of business or
decided to sit out last year, including popular ones such as Sonicsphere UK and The Big
Chill, as well as GoGo Festival, LadyRock Festival, Pride House, Trowbridge Festival,
Kelvedon Free Music Festival, Harvest at Jimmy's, & Titanic Lockdown. 30 ) “It’s basic
economics,” says Dean James, chief executive of Mama Group, a large UK multi-venue and
festival operator. “There’s over-supply in the market as anyone with a field thought they
could make easy money from a festival, and there’s less demand because of economic
conditions and alternative events.”31
Amidst troubles across the pond, some promoters believe the festival market in the United
States is just getting started. Bob Roux, co-chairman of Live Nation’s North America
concerts (which produced 18 festivals in the states last year, including sold out events
30
Houghton, Bruce. “The Growing List of Cancelled UK Festivals,” hypebot, 2012,
http://www.hypebot.com/hypebot/2012/05/the-growing-list-of-cancelled-uk-
festivals.html#sthash.BIiG4vNH.dpuf (12 April 2013).
31
Spanier, Gideon. “Festivals look beyond music to woo punters in tough times,” London Evening Standard, July
25 2012.
8Sasquatch, Jay Z’s Made In America, and Music Midtown), has expressed optimism for
festival development in the States: "Fans are waiting for something in their hometown.
You're basically in the very beginning stages of what this is going to look like here in
America for the next decade." 32 Other promoters, like Jordan Wolowitz, a partner with
Founders Entertainment and promoter of last year’s sold out Governor's Ball, warns of too
much growth too fast: “It can get to a point where there's over-saturation in the festival
market... If too many festivals spring up in the same market, it's a problem."33
As more and more festivals begin to sprout up, a key differentiation factor for promoters
could be organizing niche festivals and festivals with a multi-dimensional creative emphasis,
rather than just music. While oversaturation of the United States’ major festival market is
likely approaching, there is room for smaller and mid-level niche festivals to develop and
grow, such as XOXO in Portland, an arts and technology festival “celebrating disruptive
creativity” 34 (funded by a Kickstarter project led by former Kickstarter CTO Andy Baio),
Decibel International Festival in Seattle focused on “Electronic Music Performance, Visual
Art and New Media”, and Northside Festival in Brooklyn, celebrating emerging "music, film,
food, ideas and entrepreneurship."35 Compelling and unique offers will continue to be key
for differentiation amongst a growing festival market.
32
Knopper, Steve. “Music Festivals Enjoy Record Expansion in 2012,” Rolling Stone, April 12 2012.
33
Ibid.
34
“XOXO” XOXO, 2013, http://2013.xoxofest.com/ (12 April 2013).
35 nd
“Brooklyn’s Northside Festival Unveils 2 Annual Event,” Indiewire, 2011,
http://www.indiewire.com/article/brooklyns_northside_festival_announces_2011_lineup (12 April 2013).
9Case Study: The EDM Movement
During the past five years, a seemingly desperate “arms race” has occurred, with many large
U.S. conglomerates chasing the ever-growing Electronic Dance Music (EDM) market. This
“gold-rush” mentality reached new heights with the recent announcement of the first ever
mass market EDM movie from 20th Century Fox and EDM producer mogul Diplo,36 and the
acquisition of Beatport, the biggest online music store and community for DJs, by SFX
Entertainment for approximately $50 million.37 The SFX move is just another step in the $1
billion investment plan announced some time ago by SFX’s leader Robert Sillerman, who
aims to extend his empire into the EDM industry, which is now worth over $4 billion per
annum38 and showing huge increases annually in ticket sales and radio airplay. Last year,
Live Nation bought Los Angeles-based electronic dance music promoter Hard Events, just a
few months after their acquisition of another big popular EDM event organizer, U.K.-based
Cream Holdings, promoter of the Creamfields festivals.39 It is evident that many perceive
the growing force of the EDM movement as a road to escape from the darkest era of the
music business.
Not surprisingly, with the music business shifting toward live events and festivals, well-
known corporate players are seeking a slice of the newly appetising dance music pie. A
recent chart ranking the most powerful people in the EDM industry includes Joel Zimmerman
from William Morris Endeavour’s new electronic division, James Burton from Live Nation,
Robert Sillerman from SFX Entertainment, and Pete Tong from UK BBC Radio1, with
Pasquale Rotella, head of Insomniac, operator of the Electric Daisy Carnival and the
EDMbiz conference in Las Vegas, at number one. 40
Further, total EDM festival capacity in the United States has grown by over 45% since
2007,41 and Europe is also growing via top-line events like Tomorrowland and Time Warp.
Emerging events, like the Exit festival in Serbia and BPM in Mexico are gaining strong
momentum as well as established dance festivals such as Ultra and Sónar, which now take
their festival around the globe, reaching the US, European, South American and Asian
markets. Some promoters are now seeking new ways to match the “underground” side of
EDM with more traditional pop-music culture; Live Nation Spain launched its Ibiza 123
Rocktronic festival in 2012, pairing pop-rock veteran Lenny Kravitz Chilean with minimal-
house DJ Luciano.
As EDM moves into the mainstream, corporate sponsorships, mergers, brand alliances and
partnerships have naturally followed, and DJs have suddenly become the new rock-stars - or
as Forbes has called them, “Electronic Cash Kings”. Forbes’ chart of annual EDM earnings
is lead by Tiesto with $22 million earned last year, pulling up to $250,000 per gig, and
36
Battan, Carrie. “Diplo Executive Producing Movie About EDM for Fox,” Pitchfork, 2013,
http://pitchfork.com/news/50299-diplo-executive-producing-movie-about-edm-for-fox/ (12 April 2013).
37
Sisario, Ben. “SFX Entertainment Buys Electronic Dance Music Site,” The New York Times, February 27,
2013.
38
IMS BUSINESS REPORT 2012
39
Roberts, Randall. “Live Nation’s EDM chief James Barton talk the music’s US future,” Los Angeles Times,
2012,
40
“The 50 Most Powerful People In EDM 2013,” In The Mix, 2013,
http://www.inthemix.com/features/54908/The_50_Most_Powerful_People_In_EDM_2013?page=8 (15
April 2013).
41
IMS BUSINESS REPORT 2012
10Skrillex, Swedish House Mafia and David Guetta, respectively at the second, third and fourth
spots, earning between $13-15 million per year.42
The majority of dance music festivals now rely on standard lineups of just few big EDM acts,
something that has been seen as a detraction from the purity of electronic music itself. For
example, Carl Cox, Tiesto and Guetta represent different audiences and genres within EDM,
but are often booked as headliners for EDM festivals while many hard-core fans feel these
artists should not share the same stage. This “underground” vs “mainstream” battle has
continued through wars of words on Twitter and other social media between DJs and
producers, with each side questioning the other’s authenticity,43 and is reminiscent of the
90’s East Coast/West Coast hip-hop rivalry. The recent news of Paris Hilton behind the
decks and Justin Bieber announcing a DJ-residency in an Ibiza club for the summer season
only fuels the intensity of the debate as some believe EDM is becoming just another pop-
trend bubble ready to burst.
As we have seen since the early 70s, the electronic music industry goes arm in arm with
technological progress. This factor, along with the boom of online Do-It-Yourself platforms,
has made the life of music aficionados simpler than ever, closing the gap between the
consumer and the professional, and giving the feel that anyone can be the next big DJ or
producer. Equipment to make records is considerably less expensive than even ten years
ago; Skrillex has reported that he has made Grammy award winning tracks only with
software on his laptop.44
Thousands of online courses, specialized schools and conferences are adding to the
booming industry at every level, redifining and expanding the concept of music education.
Of particular interest are those education-oriented tours around major colleges in the US,
like Richie Hawtin’s “CNTRL: Beyond EDM”, in which Hawtins and other notable DJs hosted
sessions on technology and music production, allowing attendees to interact and learn from
touring EDM profesisonals.
Prehaps the biggest issue in EDM music today is the lack of professionalism and awareness
of legal procedures that part of this culture seems reluctant to fully embrace. As reported by
PRS for Music’s director of membership and rights Mark Lawrence at MIDEM 2013, EDM
represents up to 20% of UK BBC Radio 1 entire programme (one of the most famous radio
shows worldwide), but only only 50% of those songs get remuneration rights (royalties)
because of the lack of metadata or mistakes in the playlist sheets. Moreover, the lack of
complete and detailed set lists results in another potential huge loss for authors and
publishers of those songs; in the case of one big electronic music festival, it has been
speculated that up to 100,000€ in royalties fail to find the right pockets.45
42
Greenburg, Zack O’Malley. “The World’s Highest-Paid DHs 2012,” Forbes, 2012,
http://www.forbes.com/pictures/eeel45jfeg/the-worlds-ten-top-earning-djs/ (12 April 2013).
43
Walker, Peter. “EDM Wars -Storm in a bassbin or impending industry implosion?” Independent Arts Blogs,
2012, http://blogs.independent.co.uk/2012/07/11/edm-wars-%E2%80%93-storm-in-a-bassbin-or-impending-
industry-implosion/ (13 April 2013).
44
“When Richie Hawtin Met Skrillex,” Mixmag, 2012, http://www.mixmag.net/words/features/richie-hawtin-
interviews-skrillex (10 April 2013).
45
“PRS for Music launches electronic music initiative, Amplify,” PRS for Music, 2013,
http://www.prsformusic.com/aboutus/press/latestpressreleases/Pages/PRSforMusiclauncheselectronicmusicinitia
tiveAmplify.aspx (14 April 2013).
11Further, with much of electronic music born via the creation of new works from existing
works, the situation becomes highly complicated when considering copyright law and “what
is a derivative work”. In countries enforcing moral rights, the question of whether mash-ups
and remixes violate an author’s right to the integrity of his work remains mostly unexplored.
In addition, the image of modern “laptops DJs” have led some collecting societies, such as
German collection society GEMA, to introduce license fees imposed on DJs who play and
store songs digitally, generating criticism of older institutions as not ready to cope with this
fast-moving industry. Many German DJs have protested against the new license fee
imposed by GEMA, claiming the fees at €0.13 euros (0.17¢) per title or €125 ($163) for a
collection of 1,000 tracks and an additional 500 tracks for €50 ($65) are too high, pointing
out that a typical DJ in Germany (storing some 15,000 digital tracks) would have to pay
GEMA about 1,500 Euros (about $2,000) each year.46
In the end, legal issues and missed opportunities can be seen as further incentives to induce
new players into the EDM genre, as a perfect place to find and experiment new solutions for
the entire music industry. On the other hand, some legacy promoters already feel things are
spiraling out of control. Ricardo Urgell for instance, Pacha Ibiza’s long time patriarch, has
expressed his frustration with paying escalating performance fees for DJs to play less and
less time. Dance producer Deadmau5’s definition of EDM as “minimal effort for maximal
profit” 47 couldn’t be more accurate, and is one reason why it is so controversial, so
challenging, so unpredictable, and yet so attractive.
3. Current Issues
Based on the discussions arising from the Rethink Music Innovation Summit at MIDEM 2013
as well as exchange within our team and other industry executives, we have identified six
key current issues to be described in this second half of the paper.
The Value of Music
The most common topic arising from discussions about today’s music industry is the value of
music in the digital age. The concept of value is most traditionally perceived as a
measurement of the benefit an economic actor can gain in exchange for an object or service.
With a perspective limited to strictly to economic benefit, one can contend the value of music
has drastically declined. At $16.5 billion, current total recorded industry revenues are far
from the heyday of the late nineties, when they clocked in at roughly $38 billion. Some claim
that the value of music is close to if not at zero, as the majority of music consumers are
accustomed to free access, whenever they want, through an expanding number of channels,
including legal platforms such as traditional radio, YouTube, Pandora and Spotify, or via
torrents, peer-to-peer networks and file sharing platforms. A recent study by Nielsen found
that portals available to music consumers for free are the most accessed media for music
46
Spahr, Wolfgang. “German DJs Protest GEMA’s Proposed Tax on Digital Music Collections,” Billboard, 2013.
http://www.billboard.com/biz/articles/news/digital-and-mobile/1556724/german-djs-protest-gemas-
proposed-tax-on-digital-music (14 April 2013).
47
“’Minimal effort for maximal profit’: Deadmau5 talks EDM, Hookers and More,” FACT Magazine, 2012,
http://www.factmag.com/2012/11/26/deadmau5-on-edm-minimal-effort-for-maximal-profit/ (11 April
2013).
12discovery: 48% of all people say traditional radio is the dominant way they discover music,
with 64% of teens reporting they use YouTube to listen to music more than any other
source.48
A broad perspective takes into account the many types of “currency” that have evolved in
the digital paradigm to encompass not just money, but amounts of time, attention, personal
data and social participation in music experiences. Music consumers appear to be listening
and interacting with music more than ever; the total volume of music purchases reached an
all-time high in 2012, totaling over 1.65 billion units, up 3.1% from the previous year thanks
to growing consumption of digital formats (digital albums were up 14% and digital tracks up
5%).49 One study of 500 music consumers found that 45% listen to music over 10 hours a
week, while 75% of listeners belong to a social listening site (Pandora at number one,
Spotify at number two, and Last.fm number three).50 Youth in particular are spending more
and more time with music - a study of America’s youth found that kids aged 8 to 18 listened
to music 2 hours and 31 minutes a day in 2010 on average, compared to 1 hour and 48
minutes a day in 1999.51 Even when consumers are not paying for their music experiences,
they are often giving valuable assets such as personal data, allowing platforms to deliver
targeted ads.
Considering these factors, the conversation around music should not necessarily be
concerned with the question of whether or not consumers value music in today’s society,
because there are many types of currency consumers trade in order to obtain value from
music products and services. With this perspective, the value of music for consumers is
clearly evident. As in all industries, however, value alone does not guarantee revenue. The
question industry stakeholders should ask themselves is how to increase willingness to pay
for their offers, because when free offers are perceived to offer the same value of paid offers,
willingness to pay is greatly reduced.
Tellingly, a recent study by Nielsen of over 4,000 music consumers indicates their
willingness to pay would significantly increase if the industry offered a more engaging set of
products and experiences than what is currently available. "Fans want more," said Barbara
Zack, Chief Analytics Officer at Nielsen Entertainment Measurement. "There is an unmet
need there. There is a desire to engage at a different level than what they have."52 The
study concludes that exclusive music merchandise, such as signed posters, limited edition t-
shirts, handwritten lyrics, and even direct personal experiences such as a 30-minute Skype
conversation with an artist could generate a potential $450 million to $2.6 billion in annual
incremental revenue.53 The compelling part about the findings is that exclusive content
48
“Music Discovery Still Dominated by Radio, Says Nielsen Music 360 Report,” Nielsen, 2012,
http://www.nielsen.com/us/en/press-room/2012/music-discovery-still-dominated-by-radio--says-nielsen-
music-360.html (12 February 2013).
49
“The Nielsen Company & Billboard’s 2012 Music Industry Report,” Business Insider, 2013,
http://www.businesswire.com/news/home/20130104005149/en/Nielsen-Company-
Billboard%E2%80%99s-2012-Music-Industry-Report (10 February 2013).
50
Monks, Sarah. “Social Sound Bytes: Music Listening & Sharing,” Lab42, 2012, http://blog.lab42.com/social-
music-sound-bytes (14 February 2013).
51
The Henry J. Kaiser Family Foundation: Generatio M² - Media in the Lives of 8- to 18-Year-Olds (2010)
52
Peoples, Glenn. “Nielsen Stidy: Music Industry Could Add $450 Million to $2.6 Billion in Incremental Revenue
With Premium Content,” Billboard, March 12, 2013.
53
Ibid.
13offers as mentioned above are attractive not only to consumers Nielsen calls “Aficionados”,
(the most active music buyers (53%)), but even to a sizable percentage of what Nielsen calls
“Ambivalent consumers” (22%).54 Offering exclusive music content and related goods is not
a revolutionary idea, as independent musicians have found direct-to-fan strategies offering
expanded music offers via crowdfunding platforms such as PledgeMusic and Kickstarter to
be extremely successful. (As of this writing, Kickstarter alone has successfully funded
10,797 music projects, with roughly 10% raising under $1,000, 72% raising $1,000 to $9,999
and the remainder of projects raising over $10,000).55 Considering their sizable ownership
and considerable influence in producing and marketing the work of their artists, major labels
stand to greatly benefit from developing their own mixed bundle offers and exclusive offers
that could satisfy music consumers’ increasing demands for a better music experience.
Balance Between Majors / Independents
With three major labels controlling almost 90% of the global recorded music market in
2013,56 the music business is often labeled an oligopoly. Universal, Sony, and Warner are
not only responsible for the majority of the industry’s recorded music revenues, but wield
substantial power as gatekeepers to mass media such as television, radio and other
distribution channels through equity stakes in powerful media conglomerates and music
startups. Independent labels are often subject to the terms established by the majors with
distribution outlets, if not considerably dependent on them for distribution; according to a
recent report by the Consumer Federation of America and Public Knowledge, independent
labels now rely on the majors for the distribution of over 60% of their content.57
New services find themselves in a weak position when negotiating licensing deals with the
majors, as failure to contract with one of the three powers would inflict gaping holes in a
music offer that would not go unnoticed by consumers. Digital services often find
themselves in a tight bind, often settling by granting the majors large upfront payments,
escalating licensing rates, stakes in equity, and other various demands.58
Despite their overwhelming influence in the production and distribution of recorded music,
major labels are balanced out, at least in the U.S., by the collective strength of the
independents, who are estimated to claim roughly a third of U.S. album sales in 2012, more
than any single major label.59 In many international markets there are successful standout
independent labels such as XL Recordings (UK) and Avex (Japan), which compete with the
majors to a certain degree. Further, independents are recognized for influential
contributions to entertainment culture, such as through their prominent successes at the
54
Ibid.
55
“Kickstarter Stats,” Kickstarter, 2013, http://www.kickstarter.com/help/stats (19 March 2013).
56
“The Nielsen Company & Billboard’s 2012 Music Industry Report,” Business Wire, 2013,
http://www.businesswire.com/news/home/20130104005149/en/Nielsen-Company-Billboard’s-2012-
Music-Industry-Report (17 March 2013).
57
Resnikoff, Paul. “Report: Indie Labels Are Now Heavily Dependent on Major Label Distribution,” Digital Music
News, 2012, http://www.digitalmusicnews.com/permalink/2012/120615indies (17 March 2013).
58
Robertson, Michael. “Why Spotify can never be profitable: The secret demands of record labels,” Gigaom,
2011, http://gigaom.com/2011/12/11/why-spotify-can-never-be-profitable-the-secret-demands-of-record-
labels/ (17 March 2013).
59
“Indie Label U.S. Sales Market Share Grows to 32.6 Percent; Indies Remain #1 Sales Sector,” American
Association of Independent Music, 2013, http://a2im.org/2013/01/07/indie-label-u-s-sales-market-share-
grows-to-32-6-indies-remain-1-sales-sector/ (18 March 2013).
14music industry’s most esteemed awards night, the Grammys. At the 2013 Grammys,
independent labels and artists were recognized with 50% of all nominations for the third
consecutive year in a row, winning 36 of 79 non-producer awards, including Best Album
awards in 18 genres and the Academy’s most prestigious award, Album of the Year, for
Mumford and Sons.60
The rise of the independents is also noticeable in their recent presence in top slots of the
Billboard’s Hot 100 chart. For the first time in nearly two decades and the only second time
ever in history,61 independent artist duo Macklemore and Ryan Lewis claimed the number
one spot on America’s defining singles chart with their alternative bargain-hunting hit “Thrift
Shop” earlier this year. Shortly after, “Harlem Shake”, the bass-thumping jam that inspired a
worldwide Internet meme hit the top of the chart after the inclusion of YouTube streaming
data in the chart’s methodology. Billboard was in discussions about adding YouTube to the
Hot 100 formula for almost two years, but after the song gained a worldwide audience with
rapid speed after the meme began, Billboard updated the chart’s methodology
immediately.62 This modification demonstrates the changing notions of what it takes to have
a hit, acknowledging the reality that artists can find success without the assistance of a
major label if they manage to produce and distribute a consumer hit.
Many new artists and small labels find joining distribution and aggregation networks such as
CD Baby and TuneCore beneficial in placing their music in the world’s leading digital music
platforms such as iTunes, Spotify, and Amazon MP3. Other independents forgo do-it-
yourself (DIY) distribution, due to the weak bargaining power accompanying the individual
negotiation rights, in favor of a collective bargaining strategy. Many digital music services
wishing to license a breadth of independent repertoire turn to the Merlin Network, the largest
global rights agency for independents. This non-profit organization represents over 12,000
independent labels, aggregators and right representatives, 63 including world leaders XL
Recordings, Rough Trade, Warp Records, Beggars Group and Sub Pop, viewing itself as
the fourth major, seeking to “represent its members in new media deals that can’t be easily
negotiated locally or individually or are not covered adequately by existing arrangements.”64
The impressive scope of rights represented is the reason why Merlin Network claims it is the
“most efficient means for digital music services to license repertoire from the largest and
most compelling basket of independent rights in the world.”
Stepping back and looking at the whole picture, the majors appear to be in control of the
industry as always, but there’s never been a better time to be an independent. With large
and often rigid organizational structures, majors struggle hardest to adapt to the changing
playing field of the music business. Their marketing and distribution muscles are undeniably
larger than any independent’s, and many artists continue to sign with them for that reason,
60
Houghton, Bruce. “Independents Continue Grammy Winning Streak,” hypebot, 2013,
http://www.hypebot.com/hypebot/2013/02/independents-continue-grammy-winning-streak.html (17
March 2013).
61
Feeney, Nolan. “Macklemore’s ‘Thrift Shop’ Is First Indie Hit to Top Charts in Nearly Two Decades,” TIME,
2013, http://newsfeed.time.com/2013/01/25/macklemores-thrift-shop-is-first-indie-hit-to-top-charts-in-
nearly-two-decades/ (17 March 2013).
62
Sisario, Ben. “What’s Billboard’s No. 1? Now YouTube Has a Say,” The New York Times, February 21, 2013.
63
“Merlin: Global Rights Body for Independent Music Grows to 8% Share of US Market,” Merlin Network, 2007,
http://www.merlinnetwork.org/download.php?type=file&id=f1226665186 (19 March 2013).
64
“Welcome To Merlin,” Merlin Network, 2013, http://www.merlinnetwork.org/home/ (19 March 2013).
15which may very well be appropriate considering an act’s genre and ambitions. On the other
hand, thanks to technological improvements and the Internet, independents have all the
tools enabling them to produce, market, and distribute professional sounding and looking
content, giving artists the opportunity to ignite their own careers from their bedroom.
Considering the drastically varying needs of creators, one can reach the reasonable
conclusion that there is a place and purpose for entities of all sizes in the industry.
Copyright Law / Licensing
Copyright law serves as the backbone of the recorded music industry, as it grants authors
certain exclusive rights to their creative works for a period of time. The idea of copyright was
conceived in the early eighteenth century as a mechanism to control the production of
printed materials. In the early years of the music industry, copyright law was leveraged to
protect the exclusive right of authors to copy their works, such as sheet music, and later,
sound recordings. Copyright law allows authors or owners of creative content to exploit their
assets as they choose, and enables the music industry to profit from its endeavors.
In today’s digital age, where copies are so easily generated, many are questioning a copy-
based system of rights and argue that perhaps a “use-based” system of rights might be
more appropriate. Further, music in 2013 is a global commodity, but there is a lack of both a
detailed global copyright system (the Berne Convention offers some out-of-country
protection for creative works but licensing regimes are country-by-country), as well as a
centralized, authoritative database identifying musical works and the owners of the rights
associated with these works. This presents a problem for music industry stakeholders and
anyone wishing to license musical works or otherwise do business with the industry, as all
parties would benefit from a streamlined identification and licensing regime. As it stands
today, it can be an arduous and frustrating undertaking to identify rights owners of a certain
musical work, sometimes without fruition or certainty that the information obtained is correct.
Change to this process may be around the corner with the development of the Global
Repertoire Database (GRD), whose stated mission is to provide single, comprehensive, and
authoritative representation of the global ownership and control of musical works. The
creation of the GRD is spearheaded by a collaborative international effort of the Global
Repertoire Database Working Group (GRD WG) formed in late 2009, led by representatives
from the following 14 organizations:
ECSA (European Composer and Songwriter Alliance)
ICMP (International Confederation of Music Publishers)
CISAC (International Confederation of Societies of Authors and Composers)
Sony/ATV Music Publishing/EMI Music Publishing
Universal Music Publishing
Warner/Chappell Music
APRA (Australasian Performing Right Association)
GEMA (Gesellschaft Für Musikalische Aufführungs- und Mechanische
Vervielfältigungsrechte)
PRS for Music
SACEM (Société des Auteurs, Compositeurs et Editeurs de musique)
STIM (Sveriges Tonsättares Internationella Musikbyrå)
Apple
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